The Complete Chargeback Guide for Merchants and Consumers

Most Credit card networks and issuing banks have similar chargeback procedures. However, there may be variations depending on the bank or network. A chargeback travels through the card network through the issuing bank to the merchant’s acquiring bank. The merchant has the option of accepting or disputing the chargeback.

A chargeback is a series of events. It’s a process that may be drawn out and complicated for everyone concerned. Chargebacks are particularly problematic for merchants since they bear the majority of the responsibility for them.

It serves more than just your benefit to comprehend how chargebacks are processed. Understanding the process from start to finish will help you avoid expensive errors, combat false chargebacks more successfully, and receive a greater return on your investment for the time and effort you put into handling disputes.

Who Takes Part in the Chargeback Procedure?

The Cardholder, the Merchant, the Issuing bank, the Acquiring bank, and sometimes the Credit card network are the main parties in the chargeback process.

The Client or Cardholder

These are not necessarily the same person. The cardholder is the legal owner of the payment card used to make the disputed transaction. The cardholder and the customer in a conventional transaction or benign fraud chargeback are the same individuals.

• Two people who used a stolen card to purchase are not the same as the person who committed the fraud.
• The person who committed the fraud is the one who used the stolen card. The two people who used it are just bystanders.

The Vendor

The person or business that sells the consumer a product or service is known as the merchant. The merchant must choose whether to accept or challenge the chargeback when submitted.

The Issuing bank (Issuer)

An organization that supplies the cardholder with a branded payment card, such as a bank or another financial institution. Bank of America, Wells Fargo, and Capital One are other examples.

The Purchasing bank (Acquirer)

The merchant’s bank processes credit card payments and manages their merchant account.

The Network of Credit cards

The company owns the brand of the credit card used in the transaction.

• There are four main credit card networks in the United States: Visa, Mastercard, American Express, and Discover.
• The issuing banks must follow the rules set by the networks.

The chargeback procedure may include other merchant accounts service providers, such as payment processors and gateways.

What is the Chargeback Process?

The cardholder disputes a charge typically before a chargeback occurs. The merchant has two options if the bank initiates a chargeback: they accept or reject it. If they contest it, the bank looks at the facts and makes a decision that may, if required, be appealed.

The volume of information needed is challenging for businesses throughout the chargeback procedure.

• For a chargeback to be processed, the merchant must take action at each stage.
• If the merchant fails to take action, the chargeback will be automatically accepted and un-reviewable.

However, a straightforward chargeback procedure is simple to describe. Just keep in mind that many chargebacks will depart from this example:

• The Cardholder develops the notion that a transaction charged to their account is erroneous and that they shouldn’t be responsible for paying it. To contest the transaction, they get in touch with their issuing bank.
• The Issuing bank examines the cardholder’s claim to see if it qualifies as a legitimate justification for granting a chargeback. If the claim is invalid, the dispute will end there, and there won’t be a chargeback.
• Banks usually give their customers the benefit of the doubt. This means that a bank will usually allow a chargeback even if the customer’s reason for it doesn’t fit one of the authorized categories.
• Usually, Banks will allow a chargeback if the customer has a good reason. This means that the customer is usually right and the bank is wrong.
• The Cardholder receives a provisional credit from the issuing bank in the amount of the disputed transaction. The bank then informs the acquirer of the merchant. The acquiring bank will debit the merchant’s account and apply any necessary chargeback costs after notification.
• The Acquiring bank will notify the merchant of the chargeback. The merchant often learns about the conflict for the first time at this point, which may have passed since the original dispute. Next, the retailer must choose whether to accept or reject the chargeback.
• The Merchant must provide a response letter and accompanying documentation to demonstrate the validity of the chargeback if they decide to contest it. The issuing bank will assess this proof before accepting or rejecting the chargeback.
• The Card network will resolve the dispute if the merchant files an arbitration appeal after the bank rules against them. There will be costs in the hundreds of dollars for the losing side in the arbitration.

Merchants should be aware that in addition to the standard chargeback cost, they may be assessed a non-response fee if they fail to contest or accept a chargeback before the deadline. Therefore, even if the merchant decides not to contest the chargeback, they must still respond to it somehow.

How can Businesses combat Chargebacks?

Chargeback representation refers to a merchant re-presenting the charge in response to a chargeback to dispute it. The merchant must provide representation along with documentation denying the cardholder’s claim.

The appropriate proof will depend on the truth of the claim; however, for normal chargebacks, pertinent evidence might include:

• Date and Timestamp information from a transaction
• Verification of delivery, CVV, and AVS
• History of transactions for the cardholder
• Conversations between the cardholder and the merchant
• Signed delivery confirmations
• Additional relevant information or supporting evidence about the disputed transaction

The Issuer will analyze the evidence provided by the merchant before making a decision. It will be sent from the acquirer to the network to the issuer. The issuer will cancel the chargeback by removing the cardholder’s provisional credit if they believe the merchant’s proof to be convincing and genuine.

The Acquirer will subsequently send the monies back to the merchant’s account. The chargeback will continue to count against the merchant’s chargeback ratio, and the chargeback cost will not be reimbursed. This is why the most excellent defense against chargebacks is always prevention.

• If the issuer thinks the merchant’s proof does not refute the cardholder’s assertion, the chargeback will be upheld.
• Merchants can go to arbitration with the card network, but doing so is rare.
• When a dispute is resolved by arbitration, the person who loses the debate will have to pay hundreds of dollars in costs.
• The card network often evaluates the evidence in disputes similarly to how the issuer would. The losing party will have to pay a lot to resolve their case.

Conclusion

The Chargeback procedure still safeguards the security of the payments sector, notwithstanding the need for change. Understanding chargeback’s advantages and drawbacks help reduce the number of disputes, and new mitigation strategies can assist navigate the present chargeback minefield.